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Interpublic Reports Strong Gains for Fourth Quarter, Full Year

PR Is a Bright Spot for Holding Company, Which Points to 'Limited Visibility' for 2009

NEW YORK (AdAge.com) -- Despite a tough economy and difficulties with its key General Motors Corp. client, Interpublic Group of Cos. has weathered the storm well so far.

Michael Roth
The U.S.-based holding company -- which is the parent of global agency networks such as McCann Erickson and Weber Shandwick and of domestic shops such as Deutsch, Martin Agency and R/GA -- today said it doubled profits in 2008 to $265 million, compared with $131 million in 2007.

In the fourth quarter, net income leapt to $210 million, compared with net income a year ago of $163 million. Quarterly revenue fell 4% to $1.9 billion compared with the same period the year before, but was up 6% from 2007 to $7 billion for the full year. Total debt of $2.12 billion as of Dec. 31 decreased from $2.35 billion as of Dec. 31, 2007.

'Elephant in the room'
During the call, Interpublic Chairman-CEO Michael Roth referred to the holding company's embattled GM client as the "elephant in the room." Despite a standing policy not to discuss exposures tied to specific clients, he provided analysts with an estimate of Interpublic's current exposure to GM, citing it as $150 million.

Among other things, the economy has been challenging for Interpublic's events business, though public relations was a surprising bright spot.

Harris Diamond, head of Interpublic's Constituency Management Group, which oversees the holding company's PR, experiential and sports-marketing agencies, sent a memo to all of its PR agencies alerting them that the sector grew 7% in 2008. (The PR operation of rival Omnicom Group, by contrast, suffered in 2008 with a revenue decline of 0.4%.) He would not identify which agencies performed well, but in this morning's conference call, Mr. Roth said both Weber Shandwick and Golin Harris had very good years.

One shop that Mr. Diamond would not provide any numbers on was Jack Morton, Interpublic's experiential agency, but he said that entire sector is under serious pressure, in particular from Congress.

A 'populist issue'
"It has become a populist issue with politicians when companies have meetings and events," Mr. Diamond told Ad Age in a separate interview. "The problem right now is that politicians frankly don't understand marketing, and in their loud yelps of surprise, there's a little bit of populism run amok. The reality is that events are important for both internal and external purposes, and experiential marketing is one of the better tools by which companies can market their products."

He said he has seen the experiential market start to pick up in 2009. "It was really frozen there for a while," Mr. Diamond said. "We're seeing clients sign contracts and renew programs, commit to new programs, and we're starting to see the meeting business pick up a little bit. It remains under pressure, but it's a little better than it was just barely three weeks ago."

While the company managed to deliver strong results overall, marketing services is now feeling the affect of larger economic forces, which means "limited visibility" for the remainder of the year for Interpublic and its peers, Mr. Roth said.

"There's no doubt that we are operating in a very challenging business environment" said Mr. Roth, who said clients are being very cautious about their marketing spending, particularly when it comes to media buyers asking for lowest rates. "They are looking at agency budgets carefully as well," he noted.

Scrutiny for experimental media
With clients even more focused on return on investment, he predicted a drop-off in spending on "experimental media," though he'd didn't identify what qualifies as experimental.

"Every dollar that is going out the door across the globe is getting greater scrutiny," said Interpublic's chief financial officer, Frank Mergenthaler, and the company is trimming real-estate costs, insurance costs and even salaries.

That also means that Interpublic is holding off on any acquisitions.

"We're very cautious about using our cash and spending our capital in an uncertain environment," Mr. Roth said. Interpublic has been eyeing a couple of companies in the digital space, but any deals are likely to be held off until the latter part of the year. The holding company aims to spend no more than $100 million on acquisitions through 2009.

Interpublic is weathering the economic storm well compared with its bigger competitors. Publicis Groupe reported a 1.1% fall in profit to $580 million in 2008, while much No. 1 Omnicom increased 2008 profit 2.5% to $1.3 billion, though, it did see its worst fourth quarter since the early '90s.